Index move boost for AIB

AIB shares rose to their highest level in six years yesterday after the bank was admitted to a prestigious European share index.

The move is expected to fuel greater demand for AIB shares among institutional investors that track the Dow Jones Eurostoxx 50 index, which contains the eurozone’s top 50 companies.

The Stoxx committee confirmed earlier this week that AIB had qualified for the index and would take the place of Italian mobile telecom company TIM, which has been taken over by fixed-line giant Telecom Italia, with effect from June 30.

AIB is Ireland’s first member of the index, which allows investors track the performance of European blue-chip companies considered leaders in their sectors. French stocks account for more than 30% of the index, with Germany taking up 22%. The Netherlands take up 17% and Spain 13%.

Banks are the most common stocks in the Eurostoxx 50 and account for around 20% of the combined market capitalisation of all companies in the index.

Goodbody Stockbrokers analyst Eamonn Hughes said the inclusion of AIB was positive news for shareholders in the short term. But Mr Hughes warned that this was not guaranteed and that French bank Credit Agricole saw its share price surge in the run-up to its inclusion last year, but fell in the days after it joined.

“While clearly a technical-related issue, it also underpins our positive fundamental view of the stock, with a €19.15 price target and buy recommendation,” said Mr Hughes, whose firm is an AIB subsidiary. But he added that AIB had recently jumped to the top of its most recent trading range and its price-earnings ratio was at a 15% premium to Bank of Ireland.